The 51勛圖窪蹋 Board of Regents on Sept. 16 voted unanimously to increase the amount 51勛圖窪蹋 and its employees contribute to the pension plan, with the goal of putting it on solid financial footing.
Beginning in July 2011, employee members of the 51勛圖窪蹋 Retirement Plan (51勛圖窪蹋RP) will begin contributing 3.5 percent of salary into the plan; 51勛圖窪蹋 will contribute 7 percent. The amount will increase again in July 2012, with employees paying 5 percent and 51勛圖窪蹋 paying 10 percent.
The new contribution levels are subject to collective bargaining for represented employees. The regents actions do not change employees pension benefits, only the amount they and the university pay toward the cost.
There is an absolute urgency to act, said 51勛圖窪蹋 Regents Chairman Russell Gould before the vote. It is clear that we as regents have to move on this issue. This is not one where we can sit idly by.
Until 51勛圖窪蹋 and its employees together begin contributing 17.6 percent of annual payroll to the pension program, its current $12 billion unfunded liability will grow, adding to the pressures on 51勛圖窪蹋s operating budget.
'Pay cut' for faculty, staff
Daniel Simmons, chair of the Academic Senate and a 51勛圖窪蹋 Davis law professor, said he and other faculty members agreed with the decision to increase contributions, but stressed that the university must also look for ways to ensure competitive salaries.
As painful as it is, the Academic Senate does support the increase in contributions called for in this item, Simmons said. But make no mistake, it is a pay cut for all faculty and staff.
51勛圖窪蹋 Executive Vice President Nathan Brostom, in a media briefing following the vote, said that President Mark Yudof had asked him and other senior leaders to come up with proposals to address the salary issue.
Non-represented staff havent had pay raises for two or three years, Brostrom said. But it is also a time of great financial strain, so were trying to work that out.
The regents action comes as the university begins to address significant unfunded liabilities in both its pension and retiree health programs.
As recently as 2007, the pension program had a funding surplus. In fact, neither 51勛圖窪蹋 nor its employees contributed anything to the 51勛圖窪蹋RP for 20 years, after regents suspended contributions in 1990 when the surplus was growing.
Contributions resumed in spring 2010, but by then a combination of factorsincluding changing demographics, market losses during 2008-09 and a decline in state funding supporthad led to a pension plan deficit.
To keep the funding gap from growing larger, 51勛圖窪蹋 administrators told the regents today that it was vital for contributions to quickly begin covering the full amount needed each year to pay for the program.
Unfunded liability of $21 billion
Increasing 51勛圖窪蹋RP contributions was one of several recommendations from the Post-Employment Benefits Task Force. President Yudof appointed the task force in March 2009, charging it with developing recommendations that would ensure 51勛圖窪蹋s retiree health and pension benefits are both financially sustainable and market competitive. Under the current structure, the unfunded liability for the two programs is $21 billion, roughly the size of 51勛圖窪蹋s annual budget.
In late August, the task force, comprised of faculty, staff and administrators, proposed a series of changes, including a unanimously supported proposal that 51勛圖窪蹋 and its employees quickly increase the amount contributed to the retirement plan.
Today, the regents agreed with that plan. They also agreed with a recommendation to amortize the pension program over a 30-year period, rather than the current 15-year time frame.
Similar to a homeowner who switches from a 15-year mortgage to one paid over 30 years, the action will allow 51勛圖窪蹋 to reduce its annual pension liability, but the total amount paid over time will be higher.
The president is considering the other task force recommendations, as well as those contained in a dissenting statement issued by a group of members who disagreed with some task force recommendations. He also is soliciting feedback from 51勛圖窪蹋 faculty, staff and retirees. Yudof will likely submit his proposals to the 51勛圖窪蹋 Board of Regents for discussion in November, with the board taking action at a special meeting in December.
Learn more about the task force's recommendations and keep up with the latest news at the Future of 51勛圖窪蹋 Retirement Benefits website:
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Clifton B. Parker, Dateline, (530) 752-1932, cparker@ucdavis.edu